National Health Investors Inc. (NYSE: NHI), much like other real estate investment trusts (REITs), is looking at deals across the continuum of skilled nursing and senior housing and looking into different ways to invest, including through joint ventures, executives said.
“We’re hopeful that we’re seeing the tip of the iceberg,” said NHI Chief Investment Officer Kevin Pascoe, as NHI sees potential deal volume significantly increase in the last several months. “In the case of new loan investments, our philosophy has always been to find a path to future real estate ownership, and that view has not changed.”
Murfreesboro, Tenn.-based NHI is looking at multiple financial products as well, which include loan lease and joint venture opportunities, executives noted during the company’s fourth quarter earnings conference call on Wednesday.
NHI currently has 65 skilled nursing assets, one hospital and 79 seniors housing properties, including assisted living. Skilled nursing makes up 34% of NHI assets, the biggest piece of the pie, followed by entrance fee properties at 26% and assisted living at 24%.
National Healthcare Corporation (NYSE: NHC) is NHI’s biggest partner, making up 15% of assets, followed by the Ensign Group (Nasdaq: ENSG) at 10%, HSM at 4% and “other SNF” at 4%.
Portfolio positioning
NHI’s portfolio is in “much better shape” for such growth thanks to structuring of leases for Discovery Senior Living and making progress on its rent reset of Bickford Senior Living during the third quarter, said NHI CEO Eric Mendelsohn.
“We’re positioned for external growth with our fortress-like balance sheet,” he added, noting the progress on the two assets that are both on the seniors housing side.
NHI’s leverage profile is one of the lowest among health care REITs, said Mendelsohn, with more than $150 million in funds and capacity to deploy capital without the need to issue equity, all while staying at or below five times net debt to adjusted EBITDA.
As of Dec. 31, 2023, NHI had $1.1 billion in net debt including $245 million outstanding on its $700 million revolving credit facility.
Mendelsohn discussed wider market trends too, doubling down on the expectation that investors will see higher interest rates lingering for longer. Moreover, the sector seems to have adapted to higher rates.
“We’re starting to see sellers and borrowers adjust to this reality. There is an obvious cost of capital disparity with some of our larger peers, but they cannot be the solution for all of the growing illiquidity in the senior housing industry,” said Mendelsohn.
Q4 activity and 2023 lookback
During Q4, NHI sold three properties with a new book value of $5.9 million for net proceeds of $7 million. The REIT sold 12 properties in 2023, with a net book value of $45.1 million for net proceeds of $59.1 million.
Net income attributable to common stockholders per diluted common share for the quarter was 74 cents compared to 4 cents in Q4 of 2022. For the year, this statistic was $3.13 compared to $1.48 in 2022.
Normalized funds from operations per diluted common share was $1.09 for Q4 compared to 85 cents in Q4 2022. Funds available for distribution was $47.3 million in Q4, an increase compared to $44.7 million in Q4 2022.
In terms of EBITDARM coverage, NHI’s skilled nursing and specialty hospital portfolio saw “solid coverage” at 2.74 times, Pascoe said, and improved sequentially from 2.62 times.
Overall, the REIT’s fourth financial quarter capped a strong finish to the year, noted Mendelsohn, with results exceeding expectations.
“Similar to the third quarter results, we experienced stable cash collections, over $2 million in deferral repayments and no unexpected rent concessions,” said Mendelsohn. “We’re excited by improving trends and continue to believe in the significant upside potential.”
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